Macroeconomics: The Week Ahead: 5 to 9 July 2021

The new week has Services PMIs/ISM, but is quite light on US data (JOLTS), with China CPI & PPI likely to be the major highlight; also scheduled are German Orders, Production, Trade and ZEW; UK monthly GDP and regular raft of monthly activity data, Canada’s BoC Q2 Business Outlook survey; Australia Retail Sales; and Japan Wages, Household Spending and Economy Watchers Survey, while EM space inflation pressures will be closely watched via way of CPI in Brazil, Mexico, Russia and Turkey. In event terms there are June ECB and FOMC minutes, an expected RBA no change rate decision, EC economic forecast update and a G20 central bank and finance ministers meeting to end the week, with a seasonally lighter schedule of central bank speakers. The week is light on corporate earnings, modestly busy for government bond sales despite no US coupon supply for a second week due to the US Independence holiday falling as it does, and a very busy one in the commodities space, with China metals reserve auctions, the UN FAO / OECD annual 10-yr outlook report and BP’s annual energy review, and above all due to OPEC+ having to extend its negotiations on easing production cuts, as the UAE continues to block an agreement.

Statistically, China’s CPI is seen unchanged at 1.3% y/y, way below the PBOC’s 3.0% target, with Food Prices set to ease on the back of falling Pork Prices, thus offsetting an expected, part base effect driven, rise in Non-Food Prices. PPI is expected to ease to 8.7% y/y after jumping from -0.4% in December to 9.0% in May, as the slew of official interventions in the steel sector saw local iron ore, steel and coal prices fall, with y/y oil prices easing due to base effects. Credit and monetary aggregates may also be published and likely see a typical end of half-year boost.

Services PMIs in Europe and the USA are expected to echo strength seen in flash G7 readings, but likely see setbacks or further contraction in many Asian countries due to the spikes seen in infection rates and associated lockdown measures in many countries.

Following on from Friday’s better than expected Payrolls and other rather more mixed labour indicators, which the Fed will see as encouraging, but not meeting its “substantial further progress” goal, the focus will be on JOLTS Job Openings, which are forecast to edge up to a fresh record 9.313 Mln. Within the report, there will be particular focus on the ‘quit rate’.

The UK looks to May monthly GDP and accompanying run of services, manufacturing, construction and trade activity indicators, with m/m GDP seen up a punchy 1.5% thanks to re-opening, which would jump the 3-mth pace to 3.9% q/q from 1.5% in April, with Services the key driver with a 4.1% q/q rise; Industrial Production and Construction Output are forecast to rebound solidly from unexpected April falls in m/m terms. The RICS House Prices Balance is expected to ease marginally from a record high 83.1 in May to 79, with the end of the Stamp Duty holiday likely to rein the housing market in coming months, above all given colossal headwinds due to an even sharper deterioration in affordability over the past year. In that context there will be some interest in the Q2 Bank of England Credit Conditions survey.

In the Euro area, the focus will be on German Orders and a slew of national Industrial Production readings, which posted unexpected falls (Easter timing may have played a role) in April despite strong PMIs, but are seen rebounding in May. German Trade is forecast to post modest gains in Exports and Imports, while the ZEW survey is anticipated to see a slight setback in Expectations, but the Current Situation to move back into positive territory for the first time since June 2019.

Japanese data may well flatter to deceive this week, primarily due to base effects, with Real Labour Cash Earnings seen at 2.4% y/y, which would be an 11-year high, while Household Spending is forecast at a robust 11.1% vs. May’s 13.0%, but fall in m/m terms as lockdown restrictions continue to bite. Better news is seen on the Economy Watchers Survey with a rebound to 41.8 in Current Conditions and 49.5 on Expectations, the latter not too far off February’s 3-yr high of 51.3.

With Turkish rates remaining sky high, Mexico instituting an unexpected (one-off?) hike last month and Brazil and Russia embarked on aggressive rate hike paths, this week’s run of CPI data are expected to see a further acceleration again in all these countries, except Mexico, though the anticipated dip there is likely to be at best marginal, and still keeping CPI well above target.

On the central bank front, the Fed minutes are unlikely to do anything but underline a broad spectrum of opinions on the appropriate timing to start tapering, though it will be interesting to see how many saw upside risks on inflation and employment, and if there was any discussion about how tapering might be communicated and enacted (i.e. pace, balance between Treasury and MBS, etc.). The ECB minutes will be parsed for some clues on why it opted to keep PEPP purchases at a “significantly higher pace” through Q3, with widening intra-Eurozone spreads a likely factor, but equally putting an even bigger premium on how the debate on tapering will go in September, particularly with few clues being offered on what might happen in Q4, or what the parameters that would need to be met to reduce the pace of purchases. The RBA is expected to alter its QE programme to a more flexible and open ended system of operation, maintaining the current A$5.0 Bln per week purchase pace, but dropping an overall time and size target; it is not expected to shift its 3-yr benchmark bond.

In commodities, all eyes will continue to be on OPEC+ to start the week to see if an agreement can be reached, none of the members will want to see a repeat of the complete breakdown in 2020, but the obstacles to reach an agreement on rolling back production cuts look to be quite high. BP’s annual statistical energy review is likely to offer some insights on how it and other oil majors will need to respond in terms of climate change goal, above all given the recent shareholder and court orders for Shell and Exxon Mobil. The EIA will also publish its Short Term Energy Outlook, and Saudi Arabia’s Aramco should be publishing its August selling prices. Given sky rocketing food prices the annual UN FAO / OECD -yr Agricultural Outlook 2021-2030 will be required reading, both in terms of food price risks, and how the sector will be impacted by climate change requirements and initiatives. Last but not least the industrial metals sector will be keeping a a close eye on China’s two auctions (Monday & Tuesday) from its states reserves of Aluminium, Zinc & Copper, as it continues to try and contain commodity price inflation. The initial auction sizes are a modest 50K, 20K and 30K respectively, take up at the dual sale will be very closely watched.

It will be another very light week for corporate earnings, with Bloomberg news identifying the following as likely to feature: Japanese food producer Kewpie Corp., online grocer Ocado, LG Electronics, WD-40, Indian IT services provider Tata Consultancy, Japanese food and clothing retailer Seven & i, Levi Strauss, U.K. fashion firm Superdry, U.S. software firm Duck Creek  Technologies, U.K. budget airline Jet2 and U.S. merchandiser PriceSmart.